Tuesday, February 16, 2016

SAP Ariba's chief strategy officer on the digitization of business and future of technology

The next BriefingsDirect technology innovation thought leadership
discussion focuses on advancements in business applications and the
modern infrastructure that supports them, and what that combination
portends for the future.

As we enter 2016, the power of business networks
is combining with advanced platforms and mobile synergy to change the
very nature of business and commerce. We’ll now explore the innovations
that companies can expect -- and how that creates new abilities and
instant insights -- and how companies can, in turn, create new business
value and better ways to reach and serve their customers.

Gardner: Now that we have cloud, big data, and mobile
architectures aligned, how does that support where we can go with new
business applications and processes -- to get entirely new levels of
productivity?

Haydon: It's an exciting new age. The new
platforms, as you say, and the applications coming together are a kind
of creative destructivism. We can start all over again. The value chain is changing because of digitization, and technology needs to respond.

So
what you hear are buzzwords like adaptivity, configurability, or
whatever, but these are table stakes now for business applications and
business networks. This digitization of value chains forces us to think
about how we bring the notion of multiple constituents within the
organization, in terms of the adoption, and then couple that with the
agility they need to do to deal with this constant and increasing rate
of change.

Gardner: People are talking more
about “digital business.” It means looking at not just new technologies,
but how you do business, of taking advantage of the ability to have
insight into your business, sharing that insight across ecosystems with
partners. Where do you see the real advantage in action now for a business-to-business (B2B) environment?

Outcome-based conversations

Haydon:
We hear about the technology and it’s important, but what we really
hear about is the outcomes. We have very outcome-based conversations
with customers. So how does the platform with the business network give
you these differential outcomes?

What's
pretty evident is that you have to be closer to your end user. And it's
also about the cloud paradigm adoption. You're only as good as your
last transaction, your last logon, your last order, or your last report
-- or whatever business process you're running in.

It's
this merger of adoption and outcome, and how you string these two
things together to be able to deliver the customer benefit.

From
a technology perspective, it's no longer acceptable just to think about
the four walls or your firewall; it's really about that extended value
chain. So this is where we're seeing this merger of this business
network concept, this commerce network concept in the context of these
business applications.

We're really starting to emerge from B2B, and it's grown out of the business-to-consumer (B2C) world. With the Facebooks, the LinkedIns, or the Ubers,
now you're seeing leading practice companies needing to embrace these
larger value chains or commerce chains to give them the outcome and also
to help drive differential adoption.

From a technology perspective, it's no longer acceptable just to think
about the four walls or your firewall; it's really about that extended
value chain.

Gardner: For organizations
that are really attracted to this and recognize that they have to
compete with upstarts, if they get this right, it could be very
disruptive.

When we think about having all of your data
accessible, when we think about processes being automated, at some
point you're able to gather more data and analysis and process
refinement that you can then reapply to your business, creating perhaps
algorithms and abilities to add intelligence in ways that you couldn’t
never do manually.

How do we get companies to understand that feedback loop and get it instituted more rigorously into their organization?

Haydon:
One thing we see is that with the technology we have today, we can hide
that complexity from the users and embed it in the way that end users
need to work. Let’s talk a little bit about an SAP Ariba example here. If
you're going to create a new sourcing event, do you really want to have
to think about the business you do with your current suppliers?
Absolutely, but wouldn't it be great when that’s all managed by extra
information presented right in front of you?

On top of
that, wouldn’t it be also great to know that these three new suppliers
in this category, in this geography that you haven't thought about
before, and wouldn't it also be great that they could be automatically
invited at no extra friction to your process? So you get more supplier
diversity. You're able to also let suppliers become more involved in the
process, earlier in the process.

We're redistributing
this value chain in terms of linking the insight and the community to
the point of where work is being done -- and that’s part of that
transformation that we're seeing, and that’s how we see it in the Ariba
context. But we’re also seeing that in the larger business-network and
business application context across SAP.

Knowing your needs

Gardner:
So to borrow the B2C example, if Uber is our poster child example,
instead of my standing outside of a hotel and having visibility of all
of the cars that are driving around that neighborhood, I could be a
business and get visibility into all of the suppliers that are available
to me. And those suppliers will know what my needs are before they even
get to the curb, so to speak.

What's the next step?
When we gain that visibility, when we have supply chain and buyer and
seller synergy, what comes next? Is there some way to bring that value
extended to the end-user at some time?

Haydon:
The next step is network resource planning. This is the awareness about
your supply base, but also what other stakeholders in that process might
mean, and this is what it could be for the end user. It's not just
about the supplier, but also about the logistics provider. It’s about
how you might have working capital and finance.

The next step is network resource planning. This is the awareness about
your supply base, but also what other stakeholders in that process might
mean.

What if you could dynamically match or
even have a conversation about differential service levels from a buyer
or supplier? I'm okay to take it tomorrow if I can get it at 8 a.m., but
it's $2 cheaper, or I am happy to take it today because of some other
dependencies.

This is a type of dynamic “what if,”
because we have the technology platform capability, in time real-time
memory analytics, but also in the context of the business process. This
is this a next generation capability that we'll be able to get to.
Because the network is external to the application, because together we
can understand the players in the network in the context of the business
process, that's where that real next evolution is going to come.

Gardner:
It sounds as if we're really starting to remove the margin of error
from business. We're starting to remove excess capacity, become fit for
purpose through that dynamic applicability of insight and analysis. How
much can we squeeze out? Do we have a sense of how substantial these
business network capabilities will become? What sort of payoff are we
anticipating when we can remove that margin of error, with tighter
integration across ecosystems? What’s the gold piece that we are going
after here?

Haydon: Well it’s a big, big, big
number. Even if we go back a couple of years -- and there’s some good
work being done on just the inefficiencies and the first sort of
magnitude on paper -- and that’s just moving something from a paper format and dematerializing that into an electronic format. Four years or
five years ago when a study was done on that, that was conservatively
somewhere between $600 billion and $1 trillion just in the Global 2000
corporations.

There is an order of magnitude more
opportunities globally from just this compression of cycle times, in the
broader sense, and responsiveness and adaptability throughout the whole
world globally.

At SAP Ariba, we just passed a great
threshold in 2015. We ran more than $1 trillion in commerce across our business network. If you just start doing a little bit of math around
what a one percent or two percent improvement of that can be from better
working capital management, or more flexible working capital
management, just pure straight productivity and just competition, of
leveling the playing field for the smallest micro-supplier through the
largest international supplier, and just leveling that all out. There
are stupendous gains on both sides of the balance sheet.

Adoption patterns

Gardner:
When it comes to adoption patterns, some organizations may have been
conservative and held back, perhaps resisted becoming cloud-based. What
sorts of organizations are you seeing making a bold move, not just
piecemeal, and what can they get a lot done in a relatively short amount
of time?

Haydon: In industries where they are
traditionally conservative, they really do need to change their value
chains, because that’s what their customers are demanding. And so,
financial services, where historically you would think the old “big
iron” approach. Those types of companies are embracing what they need to
do on cloud to just to be more adaptive, to be faster, and also to be
more end-user-friendly, and the total cost of ownership approach from
the cloud is really there.

But we're a long way away
from on-premises applications being dead. I think what the cloud gives
enterprises is they can go largely to the cloud -- and we see companies
doing that -- but that the legacy-hybrid, on-premise model is really
important. That’s what’s great about the cloud model. You can consume as
you go. It doesn’t all have to be one big bang.

For
pragmatic CEOs, CFOs, or CIOs, that blend of hybrid is the legitimate
strategy -- where they can have the best of both worlds. With that said,
the inextricable pool of cloud is there, but it can be a little bit
more on their own terms, on what makes sense for their businesses.

We talk about our cloud applications, and we have leading, leading
practice, widely, broadly adopted source-to-pay cloud applications in a
fully integrated suite.

Gardner: We have
been at the 70,000- to 80,000-foot height on this discussion. Let’s
bring it down a bit lower. Help our readers understand SAP Ariba as an
entity now. What does it consist of in terms of the software-as-a-service (SaaS) services that have been acquired and built, and how that then fits into a hybrid portfolio.

Haydon:
Number one, we fundamentally believe in Ariba, and it had to give
differential outcomes to our customers, that linking cloud applications
with the business-network construct will give you better outcomes for
the things we just spoke about earlier in the conversation: visibility,
supply chain, adaptability, compliance, building on networks of networks
to be able to deliver different outcomes, linking to payment networks
like we have done with Ariba and Discovery, linking to content networks
like we have done with eBay, but bringing them into the context of the
business process can only really be enabled through networks and
applications.

From an Ariba perspective, we like to
think of it in three pillars for everyone. We talk about our cloud
applications, and we have leading, leading practice, widely, broadly
adopted source-to-pay cloud applications in a fully integrated suite.

From
a cloud perspective as well, you can have the Lego-block approach,
where we can take any one of our modules, from spend visibility all the
way through the invoicing, and start your journey there, if that's your
line-of-business requirement, or take the full suite approach.

Intrinsic
to that offering, of course, is our business network. Why I bring that
up is that our business network and our cloud applications are agnostic.
We don't actually care, from a cloud perspective, which back-end system
of record you wish to use.

Of course, we love and we believe that the best out there is S/4HANA
from SAP, but there is also a larger market, whether it's the
mid-market or whether there are other customers who are on other
journeys on the enterprise resource planning (ERP) for legacy reasons. We can connect our cloud applications and our network to any one of those.

Three levels

So,
there are three levels: network, our end-to-end cloud applications, and
last but not least, and which is really relevant from the technology
journey, a rock-solid platform. And so I am moving toward that platform
that runs our cloud apps and our network in conjunction with SAP for the
security, for the privacy, for the availability, for all of these
really important things that enterprise customers need.

Also,
you have to have the security to run these business processes, because
they're entrusting those to us, and that's really what cloud means. It
means entrusting your business processes to us to get a differential
outcome for your business.

Gardner: As
organizations try to become more of a digital business, they will be
looking to bringing these benefits to their ERP-level business
applications, their supply chain and procurement, but increasingly,
they're also looking to manage better their human resources and
recognizing that that's a dynamic marketplace more than ever.

Haydon: Yes.

Gardner:
So let's talk about how the business network effect and some of these
synergistic benefits come to play in that human resources side of
running a digital business?

Leading companies today want to have agility on how many full-time
employees they can hire, and how to manage contingent or temporary labor
aspects.

Haydon: That's also one of the
great parts from an SAP portfolio. I like to think about it two ways.
There’s human capital management internal, and there’s human capital
management external. Leading companies today want to have agility on how
many full-time employees they can hire, and how to manage contingent or
temporary labor aspects.

Together
with Ariba, you're able to, one, have a one-visibility view into your
workforce in and out, and also, if you like, to orchestrate that
procurement process to get sourcing, ordering, requisitioning and
payment throughout.

From a company perspective, when
you think about your spend profile, 30 percent to 70 percent of the
spend is about services as we move to a service-based economy. And in
conjunction with SAP Ariba and SAP Fieldglass, we have this broad, deep,
end-to-end process, in a single context, and -- by the way --
integrated nicely to the ERP system to really again give those best
outcomes.

Gardner: When people think about
public clouds that are available to them for business, they often couple
that with platform-as-a-service (PaaS), and one of the things that
other clouds are very competitive about is portraying themselves as
having a very good developer environment. But increasingly, development
means mobile apps.

Haydon: Yes.

Mobile development

Gardner: What can we gain from your cloud vision as being hybrid, while also taking advantage of mobile development?

Haydon:
From a platform perspective, you need to be “API First” because if
you're actually able to expose important aspects within a business
process, with an API layer, then you give that extensibility and that
optionality to your customers to do more things.

Let’s
talk about concrete examples. An end-to-end process could be as simply
as you could take an invoice from any third-party provider. Right now,
Ariba has an open invoice format. If someone chooses to scan it
themselves and digitize it themselves or something that a customer
wanted to do, we could take that straight feed in.

If
you want to talk about a mobile API, it could be as simple as you want
to expose a workflow. There's a large corporate mandate sometimes to
have a workflow. If you travel, there's a workflow for your expenses, a
workflow for your leave request, and a workflow for your purchase
orders. If you want that cost – the end-user that has five systems or
would rather come to one, you can have that API level there.

There
is this whole balance of how you moleculize your offerings to enable
customers to have that level of configuration that they need for their
individual business requirements, but still get the leverage of not
having to rebuild it all themselves.

That's certainly a fundamental part of our strategy. You'll see that SAP
is leading in itself under our HANA Cloud Platform. SAP Ariba is
building on that.

That's certainly a fundamental
part of our strategy. You'll see that SAP is leading in itself under our
HANA Cloud Platform. SAP Ariba is building on that. I don’t want to
flag too much, but you’ll see some interesting developments along that
way as we open up our platform from both an end-to-end perspective and
also from an individual mobile perspective throughout the course of this
year.

Gardner: Now this concept of API First,
it's very interesting, because it doesn't really matter which cloud it’s
coming from, whether on a hybrid spectrum of some sort. It also allows
you to look at business services and pull them down as needed and
construct processes, rather than monolithic, complex, hairball
applications.

Do you have any examples of
organizations that have taken advantage of this API First approach? And
how have they been able to customize their business processes using this
hybrid cloud and visibility, reducing the complexity?

Haydon:
I can certainly give you some examples. This just starts from simple
processes, but they can actually add a lot of value. For example, you
have a straightforward shipping process, an advanced shipping process.
We know of an example where a customer took 90 percent of their time out
of the receiving and made the matching of their receiving receipting
process almost by 95 percent, because they can leverage an API to
support their custom bar-coding standard.

So they
leveraged the standard business-network bus, because that type of
barcode that they need to have in their warehouse, and their part of the
world, was there. Let’s wind the clock back three or four years. If we
had asked for that specific feature, to be very candid, we wouldn’t make
it. But once you start opening up the platform at that micro level, you
can actually let customers get the job done.

But they
can still leverage that larger framework, that platform, that business
process, that cloud that we give them. But when you extend that out for
what it could mean, again, full payment, or for risk, or for any of
these other dimensions that are just typically organizational processes
to the current -- whether it’s procurement or whether it’s HR recruiting
or whatever it's like -- it gets pretty exciting.

Big data

Gardner:
One of the other hallmarks of a digital business is having aspects of a
business work in new ways together, in closeness, that they may not
have in the past. And one of the things that’s been instrumental to
business applications over the past decades is this notion of a system
of record or systems of records, and also, we have had this burgeoning business intelligence (BI) now loosely called big data capability.

And
they haven't always been that close, but it seems to me that with a
platform like SAP HANA, combined with business-networks, that systems of
record and the data and information in them, and the big data
capabilities, as well as accessing other data sets outside the
organization, make a tremendous amount of sense. How do you see the
notion of more data, regardless of its origin, becoming a common value
stream to an organization?

Haydon: This becomes
the fundamental competency that an organization needs to harness. This
notion of the data, and then the data in the context of the business
process, and then again to your point, how that’s augmented in the right
way, is really the true differentiation for where we’ll go.

We're working with our customers to identify and remove forced labor in
the supply chain, or advance global risk management or even expedited
delivery and logistics.

Historically, we laid
down the old railway tracks on business processes, but there is no such
thing as railway tracks anymore. You rebuild them every single day.
Inside that data, with the timeliness of it, is sentiment analysis so
that from a business-network context, it enables you to make different
and dynamic decisions.

Within SAP Ariba, we're
fundamentally rethinking how we can have the data that’s actually in our
environment and how we get that out -- not just to our account
managers, not just to where our product manager is, but more
importantly, out to our end users. They can then actually start to see
patterns, play with it, and create some interesting innovations. We're
working with our customers to identify and remove forced labor in the
supply chain, or advance global risk management or even expedited
delivery and logistics.

Gardner: Okay, we talked
about business-networks in the context of applications working together
for efficiency, we’ve talked about the role of hybrid cloud models
helping to accelerate that, we've talked about the data issues and some
of the development and customization on mobile side of things. What have
we missed, what is the whole, greater than the sum of the parts
component that we’re not talking about that we should?

Haydon:
There are probably two or three. There’s certainly the notion of the
user experience and that's a function of mobile, but not mobile only.
The notion of reinventing the old traditional flows and thinking that
was prevalent even five years ago on what constituted one type of work
channel no longer exists.

There's the new discipline
of what a user experience is about and that's not just the user
interface, that’s also things like they’re just the tone or the content
that’s presented to you. It’s also what it does mean on the differential
devices and way you’re working. So I think that's an evolving piece,
but cannot be left behind.

That's where the B2C world
is blazing and that's now the expectation of all of us in that, when we
go to work and put our corporate hat on, as simple as that. These two
are security and privacy. That is top of mind for a number of reasons
and it's really fair to say that it’s in a massive state of flux and
change here in the United States, but certainly in Europe. It doesn’t
matter which region you are in, APJ or Latin America as well.

Competitive advantage

That's
another competitive advantage that enterprises and providers in this
space like SAP and SAP Ariba, can, and will, and should, lead on. The
last point, maybe a trend, is that you're really seeing very quickly the
transition between the traditional service and material flows that
exist, and then the financial flows.

We're seeing the
digitalization of payments just exploding and banks and financial
institutions having to rethink and look at what they're doing. With the
technology and the platforms we have, that linking of that is physical
flows, whether they be for services or materials and that crossing over
to that payment and then the natural working capital because, at the end
of that, commerce follows money.

It’s all about the
commerce. So it's the whole space in that whole area and that technology
is the trend as well. Security UX and the whole payment working capital
management or the digitalization of that are the three large things.

Gardner:
And these are areas where scale really helps. Global scale, like a
company like SAP has, when the issues of data sovereignty come up and
you need to think about hybrid cloud, not just in its performance and
technical capabilities but the actual location of data, certain data for
certain periods of time and certain markets, is very difficult to do if
you're not in those markets and understanding those markets. It's the
same with the financial side. Because banking and finance are dynamic,
it’s different having that breadth and scope, a key component of making
that possible as well.

We're seeing the digitalization of payments just exploding and banks and
financial institutions having to rethink and look at what they're
doing.

There's one last area we can close out on
and it’s looking a bit to the future. Some competitors of yours are out
there talking about artificial intelligence (AI)
more than others, and when you do have network effects as we’ve
described, big-data mesh across organization thinking of data as a life
cycle for a digital business, not just data in different parts of your
organization.

We can think about expertise in vertical
industries being brought to bear on insights in the markets and
ecosystems. When and how might we expect some sort of an AI, value, API,
or set of APIs to come forward to start thinking things through in ways
people probably haven’t been able to do up until now or in the near
future.

Haydon: The full notion of something like a [2001: A Space Odyssey’s] HAL 9000,
is probably a little way away. But then again, what you would see
within the next 12 to 18 months is specific -- maybe you call them smart
apps rather than intelligent or smart agents.

They
already exist today in some areas. You will see them augmented because
of feedback from a system that’s not your own, whether it’s moving
average price of an inventory. Someone will bring the context of an
updated price, or an updated inventory and that will trigger something,
and that will be the smart agent going to do all that work for you, but
ready for you to make the release.

There still is a
notion of the competency, as well, within the organization, not as much a
technology thing, but a competency on what Master Data Governance
means, and the quality of that data means, and being able to have a
methodology to be to manage that to let these systems do it.

So
you will see probably in a lower-risk spend categories, at least from a
procurement perspective indirect, or may be some travel and these
aspects, maybe a little bit of non-inventory materials repair and
operating supplies, you probably fair way away from fully releasing
direct material supply chain in some of these pretty, pretty important
value chains we manage.

Self-driving business process

Gardner: So maybe we should expect to see self-driving business processes before we see self-driving cars?

Haydon:
I don't know, I'm lucky enough to live in Palo Alto, and I see a
self-driving car three days a week. So we'll back out of that one.

But
there is a really important piece, at least from Ariba perspective and
an SAP perspective. We fundamentally believe that these
business-networks are the rivers of data.

It's not just
what's inside your firewall. You will truly get the insight from the
largest scale of these rivers of data from these business-networks;
whether it be Ariba or our financial partners, or whether it be others.
There will be networks of networks.

It's scale and adoption. From the scale and from the adoption, will come
that true benefit from the networks, the business process, and the
connectivity therein.

This notion of having a
kind of the bookend of the process, a registry to make sense of the
actors in these business networks and the context of the business
process, and then linking that to the financial and payment change,
that's where the real intelligence and some real money could be
released, and that's some of the thinking that we have out there.

Gardner:
So, a very bright interesting future, but in order to get to that next
level of value, you need to start doing those blocking and tackling
elements around the rivers of information as you say the network effects
and putting yourself in a position and then be able to really exploit
these new capabilities when they come out.

Haydon:
It's scale and adoption. From the scale and from the adoption, will
come that true benefit from the networks, the business process, and the
connectivity therein.